The UK audit market is awash with tension. A variety of factors are redefining the landscape, but most prominent are the widespread scrutiny of auditing practices and high-profile allegations of malpractice. As a result of these tensions, trust in accountancy is depleting – with both the public and politicians questioning the role and responsibilities of the audit profession. With the sector braced for major reforms, this is a time of significant change. The combination of a market in flux and transformative technology means that this is the perfect time for those in the field to re-evaluate their status quo and charter their way to success.

Despite the rising problems, the sector’s response to the predicament has, to date, been underwhelming. Some firms have taken a passive approach by abandoning any audit work due to the fear of repercussions, but this is a drastic measure, especially when there are more positive and proactive ways to tackle the problem. By grabbing onto the life raft of new technologies and methodologies, accountancy can weather the storm and break through this new wave of scandals.

The need for change

The current pressures on the accounting industry are symptomatic of a changing environment. The rapid proliferation of digital channels is transforming business operations and redefining consumer expectations. Big Data is no longer a future prospect, it’s the new normal. As datasets grow in size and complexity, organisations must strengthen their infrastructure to manage data effectively. As the internet enables client businesses to transact on a global scale, accountancy firms are adapting their organisational structures to cope with the inherent complexities in data management and the use of multiple ERP systems across the global enterprise is only exacerbating their challenge.

The growing volume of information flowing across modern accounting practices naturally brings increased risks around data integrity. These risks typically manifest themselves in the crucial audit phase where the ability to detect financial anomalies is critical. Unfortunately, the traditional tools of audit are ill-equipped to handle the explosion of data and leave accounting practices worryingly exposed. However, whilst the world around them changes inexorably, the audit methodologies applied by accounting firms have barely shifted. The repercussions are there for all to see.

As trust in the profession erodes, the ‘expectation gap’ between what an audit is officially required to do and what society has come to expect is growing wider. Firms holding up their letters of engagement and declaring that they’ve met their requirements is necessary, but no longer sufficient. Society expects more. It’s incumbent on the industry to bridge that gap. Thankfully, transformative tools that leverage the powerful combination of human and artificial intelligence are helping proactive firms to modernise audit processes and mitigate the risk of accounting error.

Transformative technology

The recent rise in accounting scandals is clear proof that the old tools of audit are no longer capable of interrogating the tsunami of big data. Outdated, rules-based computer-aided audit tools (CAATs) and sampling practices present major barriers to detecting anomalies in financial data. The use of CAATs is widespread and familiar, but assisted scripting tools rely heavily on technical skill-sets to manually script rules. Not only are these skill-sets in short supply, the rules themselves can easily be circumvented. Fundamentally, the CAAT-based approach commonly results in limited coverage across large and proliferating datasets, making it difficult to detect errors, unusual transactions or anomalies. In addition, sampling methodologies can only detect lack of evidence in the subset of the data. Sampling methodology is an extremely weak indicator that the whole dataset is free of error, leaving to chance the uncovering errors in the vast majority of the dataset. Combined these two constraints make practices vulnerable to significant, and avoidable risk. There is a better way.

The use of AI eliminates the risk of traditional sampling methodologies. What’s more, because the best tools don’t require any scripting, accountants are freed to spend more time providing value to clients. This presents a huge opportunity for competitive advantage. Because fundamentally, whilst the ability to reduce risks is hugely beneficial, AI technology is not solely about detecting error and fraud. The smartest tools offer sophisticated data analytics and powerful visualisation to help firms provide enhanced value to clients in real-time. This moves client engagement beyond the constraints of the annual audit, enabling accountants to identify potential problems and provide proactive advice – moving the analysis from hindsight, to insights to foresights. In the process, this can help practices build better partnership-based relationships that ensure clients avoid unwelcome surprises at year-end.

The adoption of AI can be a major differentiator in a crowded, competitive marketplace. In the past, smaller organisations have shied away from large-scale deployments, put off by the perceived cost of implementation. The advent of cloud-based services has levelled the playing field, creating a platform for AI that is affordable and accessible to everyone. Auditing tools, powered by the AI in the cloud, provide organisations a competitive advantage and the chance to become leading-edge overnight.

Time for change

Despite rapid technological advances and a global revolution in consumer expectations, the audit profession has barely changed its methodologies in many decades. It’s time it did. As confidence in the sector plummets, AI tools can bring greater transparency and transform the capabilities of accounting firms to navigate the sea of big data and in the process close the ‘expectation gap’ with the public. Those that integrate AI solutions within their audit process will benefit from faster, more effective and reliable results that go beyond the rules and overcome the constraints of traditional sampling methodologies. AI-based methodology gives practices the reassurance of full coverage analysis, enabling them to analyse every single transaction and escalate potential anomalies for closer human investigation. In addition, they offer enhanced data analytics and real-time visibility that can help accountants give their clients substantial added value.

Ultimately, AI presents a powerful opportunity to redefine accounting, mitigate risk and restore trust in the profession. At a time when the audit industry is facing public backlash due to various scandals and allegations, the smartest organisations will be those that take control by throwing overboard their old methodologies and use AI innovation as their anchor. AI based solutions offer a life raft to accountancy in the sea of perils to navigate the profession to a safe harbour.

The Fintech Times

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The Fintech Times is the world’s first and only newspaper dedicated to fintech. Published monthly, The Fintech Times explores the explosive world of financial technology, blending first hand insight, opinion and expertise with observational journalism to provide a balanced and comprehensive perspective of this rapidly evolving industry.